Bharti Airtel's voice and data offerings suffered from the aggressive price war triggered by the Reliance Jio's free services.Reuters

Global credit rating Agency Moody's has downgraded Sunil Mittal-led Bharti Airtel Ltd's rating from "Baa3" to "Ba1". The global agency has attributed the reasons to uncertainty over profitability, cash-flow and debt level in a competitive market. Moreover, the rating outlook is also negative for India's second-largest telecom company by subscribers. The negative outlook indicates the possibility of a further downgrade of rating. With the latest ratings, Moody's has concluded the review for downgrade initiated on November 8, 2018.

These ratings by the global agencies show a company's capacity to repay debt and raise funds. Ratings range between Aaa, which means best, to lowest category C. Ba1 rating means obligations are judged to have speculative elements and are subject to substantial credit risk but have a superior ability to repay short-term debt obligations.

The downgrade reflects uncertainty as to whether or not the company's profitability, cash flow situation and debt levels can improve sustainably and materially, given the competitive dynamics in the Indian telco market.
- Annalisa DiChiara, Vice president and senior credit officer, Moody's

Notably, the Indian telecom sector is still under stress after the price-war triggered by the entry of Reliance Jio Infocomm, owned by the country's richest man Mukesh Ambani. The telecom sector has consolidated after its entry, with London-based Vodafone Plc merging its Indian operations with Idea Cellular in a deal worth $23 billion. In the last calendar year ending December 31, Airtel's EBITDA (Earnings before interest, tax, depreciation) stood at Rs 26,500 crore registering a fall of 15.5 per cent year-over-year basis. Moreover, it managed to generate just Rs. 9,000 crore through its Indian mobile segment hence contributing around 37 per cent of EBITDA.

Bharti Airtel, Gurgaon
Reuters file

DiChiara further added: "A significant recovery in cash flow from the core Indian mobile segment is needed to strengthen the company's credit quality and support greater financial flexibility."

Furthermore, Moody's also downgraded the senior unsecured rating for Airtel and the backed senior unsecured notes issued by unit Bharti Airtel Int'l (Netherlands) BV to 'Ba1' from 'Baa3'. The Share market reacted negatively to the news as the Bharti Airtel Ltd's shares tanked nearly 4.5 percent in the early hours of trading on Tuesday. Last week, Airtel registered a drop of 72 percent in consolidated net income for the three months ended December 2018 at about Rs 86 crore.